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TransCanada Seeks Dawn Expansion as NE Buyers Change Strategy

For the second time in two years, growth is in store for the Dawn trading and storage hub in southwestern Ontario as TransCanada PipeLines adapts to changing international gas supply patterns.

TransCanada filed with the National Energy Board for a second round of additions to short-haul facilities serving activity in and around Dawn, where six Canadian and U.S. pipelines converge, transactions top 12 Bcf/d, and traders have access to 800 Bcf of storage. The filing seeks C$62.6 million (US$54 million) in new pipe and compressors, with completion sought by the Nov. 1 start of the 2007-08 gas year.

The facilities round out a C$99.3 million (US$85 million) Dawn expansion package approved recently by the NEB for completion by Nov. 1 of this year. The modest pipeline additions grow out of a major change in Canadian supply and contracting patterns. The new facilities cater primarily to one of the biggest buyers of Canadian production, the Alberta Northeast Gas (ANE) consortium of 17 distribution companies in New England, New Jersey and New York.

TransCanada service agreements call for about 280 MMcf/d of deliveries to switch over to short-haul service around Dawn and off long-distance arrangements reaching west to Alberta and dating back to 1984 when ANE was born as Boundary Gas. The northeastern U.S. distributors have bought more than 2.2 Tcf of mostly Alberta-sourced western Canadian gas for US$7 billion over the past quarter-century.

In documentation filed with the NEB to support the TransCanada application, ANE says, "Northeast LDCs must plan to access multiple gas basins and have the ability to access new basins with a positive production outlook." Alberta production is flat at best and declining at worst while Canadian demand -- especially for power and oilsands plant fuel -- is on the rise, reducing the availability and raising the prices of western supplies for eastern U.S. buyers.

Alberta suppliers are either no longer willing to sign the 15-year contracts that have been the foundation of ANE or command price premiums for long commitments, the consortium says."The outlook for Canadian imports into the U.S. has substantially changed,"ANE says, citing projections by Washington's Energy Information Administration as well as Canadian industry and government forecasters."

Clearly gas imports from Canada are expected to "substantially decline and LNG imports are expected to increase to make up the difference," ANE says. Canadian gas demand is increasing and much of this demand increase is in Alberta, specifically natural gas used for oil sands extraction. "TransCanada's own projections show oilsands gas consumption about tripling into the range of 1.8 Bcf per day over the next few years.

Other forecasters indicate the TransCanada numbers could turn out to be conservative as persistently high demand and prices for oil stimulate accelerating development of the vast sandy bitumen deposits of northern Alberta. New projections by Strategy West Inc., a specialist in the field, show oilsands production accelerating about five-fold to 5.2 million bbl/d in 2020.

While the newest oilsands projects are adding "gasification" plants to extract plant fuel from bitumen, expansions by older complexes continue to account for large shares in the growth. The writing is on the wall for American gas importers, ANE says. "Flat productivity and increasing domestic demand will result in less gas available for U.S. export markets.

"These dynamics are a major concern to northeast LDCs which must plan to serve existing and future customers as well as being designated the supplier of last resort." The Dawn connections include a direct link to the Chicago gas trading hub,Vector Pipeline, as well as U.S. systems tapping American supply growth areas such as the Rocky Mountain region.

Northeastern U.S. gas requirements will keep on rising steadily, TransCanada told the NEB. Over the 10-year period 2003-2013, the pipeline's forecasters foresee total demand in New England, New York, New Jersey and Pennsylvania rising at an annual average rate of 1.05% or 0.98 Bcf/d to 9.83 Bcf/d from 8.85 Bcf/d. ANE's old portfolio of long supply contracts with western Canadian aggregators expires in two stages on Oct. 31, 2006 and a year later. The biggest block -- about 238 MMcf/d from Cargill Canada, heir to TransCanada's pre-deregulation supply pool -- runs out this Oct. 31.

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